- Office space under construction is down to 67 MSF, the lowest level since 2012, with 2024 posting the fewest new starts on record.
- Preleasing is bouncing back, with rates climbing above 67% at the end of 2024 after dipping to 60% mid-2023.
- Available under-construction space has halved in 18 months, now totaling just 23 MSF.
- But newly delivered buildings tell a different story—48 MSF of space remains vacant, or 28% of all space in properties three years old or younger.
- Location, layout, and cost challenges are keeping tenants away from some new properties, despite the shrinking pipeline.
Office sector preleasing is climbing and construction is slowing, yet new office buildings are seeing record-high vacancies—highlighting a disconnect in tenant preferences, according to CoStar.
Office Pipeline Shrinks
After years of tepid demand, the US office construction pipeline is shrinking fast. Just 67 MSF is currently underway—marking the smallest pipeline since mid-2012. With 2024 office starts hitting an all-time low, the pipeline is poised to hit a new record trough over the next year or two.
At the same time, preleasing activity is picking up. After bottoming out at 60% in mid-2023, preleasing rates rose back above 67% by the end of 2024. This slashed the amount of under-construction space still available by half over the last 18 months—now down to just 23 MSF.
Projects like 2000 Arch St. in Philadelphia, which is fully leased to Chubb and set to deliver in 2025, are prime examples of the “flight-to-quality” trend continuing to shape tenant behavior.
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Why The High Vacancies
While under-construction space is filling up, recently completed office buildings are facing the opposite problem.
Availability in first-generation buildings (3 years old or less) has climbed to 48 MSF—28% of total space in this cohort and the highest level since 2010.
Supply And Demand Mismatch
What’s driving the disconnect? One issue is location. Not all new buildings are going up in areas tenants want—think lack of transit access, limited parking, or less vibrant neighborhoods. Even within desirable submarkets, some new buildings don’t match the spatial needs of today’s tenants.
Large companies often seek big contiguous blocks, which many new projects can’t accommodate. Meanwhile, smaller tenants—currently the most active in the leasing market—may find full-floor 10K–25K SF layouts too large or inflexible.
Costs Aren’t Helping
Even when a space checks the right boxes, high fit-out and relocation costs are slowing decisions. Inflation has driven up tenant improvement (TI) costs, and many landlords are hesitant to split floors or offer generous TI packages.
For tenants, that can mean digging deep into their own pockets—or staying put.
Looking Ahead
With construction starts at historic lows and preleasing gaining ground, new deliveries will remain scarce.
But the growing vacancy in brand-new buildings shows that supply alone won’t solve the office sector’s challenges. Getting the location, layout, and cost equation right will be key for landlords hoping to fill space in this next cycle.
